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What is the after-tax cost of preferred stock that sells for $10 per share and offers a $1

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1. What is the after-tax cost of preferred stock that sells for $10 per share and offers a $1.20 dividend when the tax rate is 35%?
   
   
   A.
   4.20%
   
   B.
   7.80%
   
   C.
   8.33%
   
   D.
   12.00%
2. What is the WACC for a firm using 55% equity with a required return of 15%, 35% debt with a required return of 8%, 10% preferred stock with a required return of 10%, and a tax rate of 35%?
   
   
   A.
   10.72%
   
   B.
   11.07%
   
   C.
   11.70%
   
   D.
   12.05%
3. Should a project be accepted if it offers an annual after-tax cash flow of $1,250,000 indefinitely, costs $10 million, is riskier than the firm's average projects, and the firm's WACC is 12.5%?
   
   
   A.
   Yes, since the project's NPV is positive.
   
   B.
   Yes, since a zero NPV indicates marginal acceptability.
   
   C.
   No, since the project's NPV is zero.
   
   D.
   No, since the project's NPV is negative.
4. How much will a firm need in cash flow before tax and interest to satisfy debtholders and equityholders if the tax rate is 40%, there is $10 million in common stock requiring a 12% return, and $6 million in bonds requiring an 8% return?
   
   
   A.
   $1,392,000
   
   B.
   $1,488,000
   
   C.
   $2,480,000
   
   D.
   $2,800,000
5. How much will a firm need in cash flow before tax and interest to satisfy debtholders and equityholders if the tax rate is 35%, there is $13 million in common stock requiring a 10% return, and $6 million in bonds requiring a 6% return?
   
   
   A.
   $1,392,000
   
   B.
   $1,488,000
   
   C.
   $2,360,000
   
   D.
   $2,480,000
6. Which one of the following statements is incorrect concerning the equity component of the WACC?
   
   
   A.
   The value of retained earnings is excluded.
   
   B.
   Market values should be used in the calculations.
   
   C.
   Preferred equity is a separate component of WACC.
   
   D.
   There is a tax shield on the dividends paid.
7. What will be the effect of using the book value of debt in WACC decisions if interest rates have decreased substantially since a firm's long-term bonds were issued?
   
   
   A.
   The debt-to-value ratio will be overstated.
   
   B.
   The debt-to-value ratio will be understated.
   
   C.
   There will be no effect on WACC decisions.
   
   D.
   It cannot be determined without knowing interest rates.
8. A firm has 12,000 shares of common stock outstanding with a book value of $20 per share and a market value of $39. There are 5,000 shares of preferred stock with a book value of $10 and a market value of $26. There is a $400,000 face value bond issue outstanding that is selling at 87% of par. What weight should be placed on the preferred stock when computing the firm's WACC?
   
   
   A.
   7.25%
   
   B.
   13.74%
   
   C.
   11.48%
   
   D.
   15.09%
9. What would you estimate as the cost of equity if a stock sells for $40, pays a $4.25 dividend, and is expected to grow at a constant rate of 5%?
   
   
   A.
   17.46%
   
   B.
   14.52%
   
   C.
   12.69%
   
   D.
   15.63%
10. What is the expected growth rate in dividends for a firm in which shareholders require an 18% rate of return and the dividend yield is 10%?
    
    
    A.
    1.8%
    
    B.
    5.2%
    
    C.
    8.0%
    
    D.
    28.0%